The Hindu Business Line : Ashok Leyland's reserves set to go up on FCCB conversion

COME March, Ashok Leyland will show a marked increase in its reserves, thanks to the conversion of its `foreign currency convertible bonds' (FCCB) into equity shares.

The bonds that were issued in April 2004 could be converted into equity shares at the option of the bondholders at a price of Rs 31 a share. All the while, there was not much interest in the conversion because the market price of Ashok Leyland's shares was less than the conversion price. (Incidentally, the conversion price was reset at Rs 31, against the Rs 33.50 announced at the issue. This was because Ashok Leyland declared a 100 per cent dividend for last year and wanted to compensate the convertible bondholders for the take-away by the existing shareholders.)

However, now that the market price of Ashok Leyland's Re 1 share is much higher than Rs 31 — it closed at Rs 36.95 on the NSE on Friday — bondholders are showing interest to convert to equity, senior officials of the company confirmed to Business Line on Saturday.

There are two implications of the conversion to the existing shareholders. First, the EPS will come down. But Ashok Leyland has been showing in its results diluted EPS as well — it stood at Rs 1.53 for the first three quarters compared with Rs 0.91 for the corresponding period last year.

Second, with each additional equity share Ashok Leyland's share premium account will go up by Rs 30. The more the conversion, the more the company's reserves will get strengthened.

Mr K. Sridharan, Executive Director-Finance, guesses that at least 25 per cent of the bonds will get converted into equity shares by March. As many as 13.16 shares of Re 1 each underlie the bonds. Upon full conversion — if and when it happens — Ashok Leyland's reserves will go up close to Rs 400 crore.

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